Occupational Choice Under Credit and Information Constraints

Credit and information constraints can affect not only participation levels in different occupations, but also the types of individuals found in those occupations. I develop a model of occupational choice which shows how new information alters expectations and thus occupational choice. Credit and information constraints also interact with each other: the same information can have opposing impacts on occupational choice depending on the presence of credit constraints. Using a survey and information experiment in seven vocational high schools in Egypt, I find support for the model's predictions, including a key compositional prediction: risk averse individuals respond more to changes in expectations of risk at both the intensive (variance of income) and extensive (probability of finding a job) margins. This differential response leads highly risk averse individuals to shift towards "safer" occupations on average, and out of using credit to start a small enterprise. Because those who are risk averse report lower returns to credit in general (by favoring lower risk/lower return investments), the average expected income for those utilizing credit rises by 12% relative to the no information case. I discuss other areas where information interventions may influence participation in, and thus the efficacy of, complementary policies